Magazine Article | July 31, 2006

Improve Supplier Management

A music retailer gains control of arrangements with suppliers, improves accountability, and reduces the time needed to investigate discrepancies.

Integrated Solutions For Retailers, August 2006

Written by: Laurie Pasquerell

Virgin Megastores sells music, DVDs, games, and other merchandise online and in 126 retail stores in the United Kingdom and the Republic of Ireland. The company conducts business under the Virgin Megastores and Virgin XS brands, the latter as a factory outlet. Like all retailers in the music industry, to maximize sales it must rapidly stock merchandise in order to capitalize on trends. The retailer struggled to manage deals with its suppliers in a timely and accurate manner.

Tony Johnson, IT director, knew the relationships between Virgin Megastores and its suppliers were not consistently managed. “There are approximately 400 one-off [nonstandard] deals made between our buyers and suppliers each month,” says Johnson. “The arrangements, if recorded, were tracked in spreadsheets that were maintained by each buyer and saved on different PCs. Sometimes, they were confirmed verbally or through e-mail messages that were later deleted. As a result, the merchandising and accounting reconciliation of the deals was virtually impossible.” Virgin Megastores found it difficult to prove to the suppliers that a deal was made since there was often nothing in writing noting approval from both parties. Consequently, the retailer sometimes failed to receive the benefits previously agreed upon.

A collaborative system to track agreements was needed. Seeking improved efficiency, the company reviewed all business processes within the trading departments. As a result, it decided to create a data warehouse. To accomplish this, the retailer needed a front end application to populate the data warehouse, as well as an analytics package to examine the information contained in it.

Johnson and his team managed the data warehouse project internally. They searched for an existing front end solution that was effective as a deal management solution to track the one-off agreements between suppliers and buyers and a terms management solution to document standard trades, such as cumulative discounts. Virgin selected Eqos, a sourcing and supplier management vendor, to develop the OTIS (Online Trading Information System) front end application.

OTIS is a Web-based system that tracks the terms of all deals (standard and nonstandard) between Virgin’s buyers and suppliers. When deals are completed over the phone, the buyers enter terms into OTIS and send them to the supplier. “After receiving an e-mail alert message from the buyer, the supplier logs into OTIS and authorizes the deal or submits changes,” says Johnson. “All changes are tracked within OTIS, and both parties sign off on the terms of the deal. The buyer then transfers the order to the retailer’s merchandising system, called ELVIS [EPoS Linked Virgin Information System] by clicking a button to populate the purchase order.” Received goods are later matched with the invoice, and the terms of the agreement are confirmed. The retailer’s internal IT department worked with Eqos to link OTIS with the data warehouse, as well as with ELVIS.

Improve Accuracy Of Auditing “We rolled this out to one supplier as a test, followed by a pilot test of five suppliers, then deployed it to all others at once,” states Johnson. “With this solution, we’ve vastly reduced the discrepancies between suppliers and buyers. We now have accountability, and the business trading team has access to an intuitive system with data in one place versus a myriad of spreadsheets.”

Virgin’s finance team ensures that suppliers live up to the deals agreed upon. Audits are much less time-consuming than before using the Eqos system. Overall, Virgin’s managers now have structured information available, and they use it in a more productive manner. Next, the retailer plans to deploy Eqos Product Information Management, which will help create store profiles, monitor customer demographics, and track purchasing trends.